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The Truth About Credit Pulls and Getting a Mortgage

December 20, 2017
by
Million Mile Secrets Million Mile Secrets

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Million Mile SecretsMillion Mile Secrets Team

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What really happens if you open a new credit card during the mortgage underwriting process? I asked team member Harlan to share his personal experience!

Harlan: I broke a cardinal rule during my mortgage process. There was a great offer on the Citi Prestige card. So I decided to open a new credit card while my mortgage was in underwriting!

It caused me extra work. But in the end, my mortgage was approved. And got the house, the card, and the bonus points!

Closing Day Was a Little Sweeter With Some Extra Bank Points! But I Wouldn’t Recommend This for Everyone

Here’s what I learned from the process.

You CAN Get a New Credit Card During a Mortgage…but the Lender Might Not Like It!

I closed on my home in December 2015. A couple of years ago, the banks were still shell-shocked from the recession and housing bubble. And the lending process was extremely thorough.

My mortgage lender called within 10 minutes of the new card application and asked, “Why did you just open a new credit card?!”

I said, “There was a great offer and I wanted to use the points for a vacation to the Bahamas!” Which was the truth!

I Had to Write a Letter Explaining Why I Got a New Credit Card 10 Minutes After Opening It

I heard a groan on the other end of the phone. They already knew I had a lot of credit cards. “You need to write a letter explaining what you just told us. And don’t use the card until the house closes!” Because it would affect my debt-to-income ratio.

So I wrote a letter that said:

I opened a new credit card to earn bonus points for a vacation in the Bahamas. I do not intend to carry a balance on the card until after the closing date.

Then I had to sign, scan, and email it to them.

So the banks definitely do care if you open a new card at any point during the mortgage underwriting process.

Team member Jasmin recently refinanced her home. And while she didn’t open a new credit card, the bank let her know they didn’t care much about the number of accounts, but how much she owed in total. Which leads us to…

Do NOT Do This If Your Credit Is Less Than Excellent!

The reason the bank let me slip through with my new card is because my credit score was nearly 800 at the time. And I had a low debt-to-income ratio. If my credit score had been lower, or if the new card would’ve but my debt ratio over the acceptable limit, I would’ve been in trouble.

Many folks on Reddit shared their experiences on this subject. I encourage you to read the comments to get a sense of what works and what doesn’t!

Plus, I didn’t get away unscathed. Near the end of the process, I got another call from the lender. They said I had to close one of my credit cards even though it didn’t have a balance. So I had to say goodbye to a paid-off card. Lenders recently adopted new rules about this. And they’re not as strict as they were before.

Still, I’d caution you to be very careful during the mortgage process. And wait on new cards if you can – until you have your new keys in hand!

Bottom Line

Team member Harlan successfully opened a new credit card account while in the process of applying for a home loan. And the lender noticed the new card within minutes!

He had to write and sign a letter explaining the reason for the new card. And says his excellent credit score and low debt ratio was the reason the lender let him get away with it.

That said, if your credit isn’t great, or if you owe a lot on other accounts, it’s best to wait until you fully close on your home before you think about adding a new card to your wallet.

Have you had luck opening a new card account during the home-buying process?

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Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

I also closed on my home in Dec 2015 and went for an Amex Platinum 100K offer right before my mortgage application. Fortunately all I had to do was explain any inquiries within the previous 120 days and whether or not they resulted in any new credit. There were no issues at all, but my credit was very good.

Debt to income should not be impacted at all if you don’t allow a balance to report.

I had to go through the same. I started collecting points and miles very recently and during the under writing process I had about 6 cards and applied two more for the Sapphire preferred with 60,000 UR points and Citi AA 60,000 miles. The cards got approved and the phone started ringing. I had to send them the letter explaining though I have sufficient credit why I opened two cards within minutes. In the last they approved my mortgage and the closing date got delayed by another day. After the closing the loan officer called and told if I had not opened those cards the closing would have moved earlier which I was looking for. In the end all good.

If you already have with that financial institution a credit card with a higher credit line, simply ask to shift a part of the existing credit line into a new one so your debt ratio won’t change and you can enjoy a bonus and other card benefits without any hassle. Or open one of unreported business credit cards and nobody knows.

What you’re describing won’t change debt to income if you have new balances reporting on the new card. The solution is to not let a balance report by paying in full before the statement closes. Debt to income is only impacted if you allow a balance to report.

Banks don’t look only to your income-to-debt ratio based on balances, but also based on the total available credit line allocated to you. For that particular reason I have suggested to shift a part of the exestiting credit line towards a new card. It is surely important to keep balance on all cards as low as possible, but bank called the client within minutes after opening a new account not because of a balance increase (there was none at such time), but because of an increase in the total line ad credit available, which is more risky as it may lead to higher debt. Clear?

John, I’m not sure how you think that I’m a rude person from my comments here. I am trying to correct misinformation, and you were rude and condescending to me.

Underwriters are concerned about new accounts because it means that you are seeking credit, and that may mean that you will also have new debt.

I also didn’t say balances, I said payments. The payment reported on your credit reports is what is used to calculate debt to income when qualifying for a mortgage. Having a new balance report on a new account would mean that a new payment is also reporting.

I encourage you to go to Credit Boards or another reputable credit website and ask this question.

You are a rude person who don’t think clearly. If the balances are the only a factor, then bank would NOT call its client right after a new credit card was opened. But look, let readers decide if they take your or mine advise. Okay? This conversation is over.

Incorrect. What you are stating is part of utilization ratio which is what FICO uses as part of your credit scores. Debt to income for mortgages IS based off of what is reporting as the payment amount on your credit reports.

Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)